economy
Bank of England’s Bailey says no rush to raise interest rates amid Iran war uncertainty
Inflation can be tolerated above 2% target for now ‘given context of softness in real economy’, governor says
TL;DR
- The Bank of England is not rushing to raise interest rates due to the uncertain outcome of the Iran war and weak UK economic growth.
- Governor Andrew Bailey stated that temporarily allowing inflation to exceed the 2% target is acceptable to support the real economy.
- This tolerance for higher inflation would weaken if signs of second-round effects emerge, indicating persistence.
- Financial markets have shifted from expecting rate cuts to forecasting a potential rate hike by December.
- Bailey noted that mortgage costs and borrowing rates for businesses have already increased, effectively tightening financial conditions without central bank action.
- The Bank is better prepared to assess the impact of rising energy costs after adopting scenario planning, and would act swiftly to prevent a repeat of previous inflation surges.